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The Benefits of a General Release

01Oct

What can you do when faced with a potential legal claim against you? Even if the claim is weak, the costs of defending a lawsuit may not be worth the time, effort, and expense. Contesting a lawsuit will not only involve attorneys’ fees, court costs, and other expenses, but there is no guarantee as to the outcome. In that situation, it might make sense for you to offer a certain amount of money to the claimant in exchange for a release of all potential claims. To do this, you could use a general release.

What Is a General Release?

A general release is a type of contractual agreement involving one party giving up the right to sue or bring claims against another party in exchange for something of value. In legal jargon, the party releasing the claims is called the releasor, and the party receiving the released claims is called the releasee. The value exchanged, called consideration, is usually a sum of money. To be legally valid, a general release must have consideration. The consideration does not have to be a large sum; it can be a nominal amount.

What Terms Should be Included?

The general release should include some essential terms. First, the legal names of the releasor and the releasee should be in the agreement. The releasor and releasee do not have to be natural persons; instead, they can be business entities or organizations. If you are the releasee, you will want a broad release that requires the releasor to surrender all potential claims against you, even claims that the releasor might not know to exist at the time of the release. Section 1542 of the California Civil Code provides that a general release only surrenders the claims that the releasor knows or suspects to exist in his favor. Thus, for a releasee to obtain a general release that includes unknown or undiscovered claims in California, the releasor must expressly agree to waive Section 1542 of the California Civil Code in the release agreement. To adequately protect against all potential claims, the general release should also extend to others who might be able to raise claims on behalf of the releasor. Such persons may include the releasor’s heirs or the executor of the releasor’s estate.

Other Considerations

The parties may wish to include a confidentiality clause in the general release to keep the terms of the settlement confidential. The confidentiality clause, however, should permit the settlement to be disclosed to tax preparers, accountants, legal counsel, and financial advisors, as well as other persons as may be required by law. The general release should also state that it contains the entire agreement between the parties concerning the matter and that it cannot be changed orally.

Benefits of a General Release

A general release is an effective way of limiting liability from potential legal claims by offering the releasor a certain sum in return. It puts the dispute to rest without going through the courts, arbitration, or mediation. It also creates certainty because each party knows what each is receiving and giving up from the agreement. The general release may be negotiated amicably by the parties, which can be important if they have an ongoing relationship, such as a vendor-customer relationship or if the parties are neighbors or social acquaintances. For a California general release template, click here.